**The 1995 National 
Assessment of United States Oil and Gas Resources: The Economic 
Component**

### Introduction

The 1995 National Assessment of United States Oil and Gas Resources prepared 
by the U.S. Geological Survey (USGS) provides estimates of quantities of 
technically recoverable oil and natural gas that could be added to our already 
proved reserves in the onshore and State offshore areas of the United States. 
These areas presently contain 85 percent of U.S. proved reserves and account for 
80 percent of domestic hydrocarbon production. Proved reserves are known 
resources that can be recovered profitably with existing technology. The 
estimates of yet-undiscovered recoverable resources were reported in USGS 
Circular 1118 (U.S. Geological Survey, National Oil and Gas Resource Assessment 
Team, 1995) and in Digital Data Series 
DDS-30, release 2 (Gautier and others, 1996); they are based on detailed 
geologic analysis constrained by a thorough understanding of what is producible 
with current technology.

The estimates are reported as ranges with different levels of confidence. The 
oil and gas volumes in figure 1 are mean values; actual volumes will vary from 
these numbers.

Figure 1. Technically recoverable oil and 
      gas resources of the United States, exclusive of Federal offshore 
      resources. A, Oil. BBO, billions of barrels of oil; MMBO, millions of 
      barrels of oil. B, Gas. TCFG, trillions of cubic feet of gas; BCFG, 
      billions of cubic feet of gas.


|The USGS 1995 national assessment reported 
      on three main categories of hydrocarbon resource in addition to proved 
      reserves: 
      Undiscovered conventional accumulations - the traditional resources 
        sought by the oil and gas industry, including those resources that are 
        postulated to exist outside of known fields or accumulations and that, 
        if found, could be extracted by using traditional development practices.Unconventional resources in continuous-type accumulations - defined 
        to include those oil and gas resources that exist as geographically 
        extensive accumulations in coals (as coal-bed gas), sandstones, and 
        shales outside of discrete well-defined conventional traps.Field growth (called "inferred reserves" in the assessment) - the 
        resources expected to be added to reserves in known fields through field 
        extension, revision of reserve estimates, addition of new pools, and 
        application of new recovery techniques in the next 80 years.
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### The Economic Component

An economic dimension to the geology-based resource estimates in the USGS 
1995 national assessment is provided by USGS Circular 1145 (Attanasi, 1998). 
Specifically, this economic analysis estimates the cost of transforming 
technically recoverable resources (as reported in the assessment) into 
producible proved reserves -- it shows the price that would have to be paid to 
find, develop, and produce any particular quantity of assessed resource with 
current technology and existing scientific understanding. The economic analysis 
is intended to place the geologic resource assessment into a context more easily 
understood by industry and government policymakers.

Figures 2 and 3 summarize findings of the economic analysis. The black curves 
in figures 2 and 3 show incremental costs of finding, developing, and producing 
oil and gas from undiscovered conventional fields. The red curves in figures 2 
and 3 show the incremental costs of obtaining the total volumes of oil and gas 
that might be made available from both conventional and selected unconventional 
oil and gas accumulations - the distance between the black and red curves at a 
given price thus represents the volume that could come from selected 
unconventional sources. Incremental cost functions show at each price level the 
volumes of hydrocarbons the industry is capable of adding to proved reserves and 
producing rather than predicting what industry will actually supply.

Table 
1 presents regional data from the economic analysis. It shows volumes of 
oil and gas that could be available at $18 per barrel for oil and $2 per 
thousand cubic feet (mcf) of gas and, similarly, volumes with incremental costs 
of $30 per barrel of oil and $3.34 per mcf of gas from the assessed undiscovered 
conventional and unconventional resources. Economic oil anticipated in future 
discoveries is distributed mainly among five regions -- Alaska, the Pacific 
Coast, the Rocky Mountains and Northern Great Plains, West Texas and Eastern New 
Mexico, and the Gulf Coast.

Costs of finding, developing, and producing crude oil from undiscovered conventional oil fields
    Costs of finding, developing, and producing undiscovered conventioanl total gasFigure 2. Incremental costs, in 
      dollars per barrel, of finding, developing, and producing crude oil from 
      undiscovered conventional oil fields and continuous-type oil accumulations 
      in onshore and State offshore areas of the United States. Black line 
      represents undiscovered conventional oil, and red line represents total of 
      undiscovered conventional oil and oil in continuous-type accumulations.
    Figure 3. Incremental costs, in 
      dollars per thousand cubic feet, of finding, developing, and producing 
      undiscovered conventional total gas in oil and gas fields and 
      unconventional total gas (that is, gas in continuous-type accumulations, 
      including coal-bed gas) in onshore and State offshore areas of the United 
      States. Black line represents undiscovered conventional gas, and red line 
      represents total of undiscovered conventional and unconventional gas.


|Figure 4. The eight 
            regions of the United States as defined for the 1995 National 
            Assessment of United States Oil and Gas Resources (U.S. Geological 
            Survey, National Oil and Gas Resource Assessment Team, 1995). Region 
            names and numbers are given in table 
            1. |  | Figure 4. The eight 
            regions of the United States as defined for the 1995 National 
            Assessment of United States Oil and Gas Resources (U.S. Geological 
            Survey, National Oil and Gas Resource Assessment Team, 1995). Region 
            names and numbers are given in table 
            1. | More than half of the undiscovered conventional 
      natural gas is concentrated in the Gulf Coast. Unconventional gas, 
      particularly that available at higher prices, is concentrated in two 
      locations -- the Colorado Plateau and Basin and Range Region and the 
      Eastern Region -- both of which could serve major industrial markets. Table 
      1 also shows the amount of natural gas available as associated gas 
      (in oil fields) and additional hydrocarbon liquids from oil and gas fields 
      in the form of natural gas liquids (NGL). Associated gas accounts for 
      about 20 percent of total economically recoverable undiscovered 
      conventional gas. NGL from both associated and non-associated gas accounts 
      for 20-25 percent of total liquid hydrocarbons (crude oil plus NGL). 
      Table 
      1 contains no mention of field growth (inferred reserves). 
      Estimates of undiscovered conventional and unconventional resources in the 
      1995 assessment already include allowances for field growth based on 
      historical data. Field growth can occur through enhanced recovery methods 
      that allow more resource to be extracted from known pools, through 
      discovery of new oil pools in existing fields, through extensions of 
      existing fields, and through reevaluation of available reserves. To a 
      significant degree, these factors depend on advances in technology and 
      information, advances that are unpredictable. Although available 
      historical data were insufficient to tie costs to volumes of hydrocarbon 
      reserve additions associated with field growth, it appears that their 
      incremental costs are, on average, lower than costs associated with new 
      field development but higher than costs of producing proved reserves.
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|                                                                                                                                                                                                                                                                                                                                       
|Figure 4. The eight 
            regions of the United States as defined for the 1995 National 
            Assessment of United States Oil and Gas Resources (U.S. Geological 
            Survey, National Oil and Gas Resource Assessment Team, 1995). Region 
            names and numbers are given in table 
            1.

### The Bottom Line

Figure 5 shows the amount of crude oil, a total of 68.7 billion barrels, that 
could be made available from various sources through 2015. Figure 6 provides the 
same type of information for natural gas in oil and gas accumulations, which 
totals 474 trillion cubic feet. These diagrams include (1) economic quantities 
of undiscovered conventional and unconventional oil and gas evaluated at $30 per 
barrel of oil and at $3.34 per mcf of gas; (2) proved reserves on record as of 
January 1994; and (3) projections of field growth (inferred reserves in the 
assessment) from 1994 through 2015 for pre-1992 discoveries. Field growth 
accounts for 44 percent of the projected reserves of oil and 30 percent of the 
total reserves of natural gas.

Estimated shares of crude oil that could be available for production through 2015
    Estimated shares of total gas that could be available for production through 2015Figure 5. Estimated shares, as 
      of January 1994, of crude oil that could be available for production 
      during the next two decades through 2015. Sources consist of proved crude 
      oil reserves, field growth through 2015 for fields discovered before 1992, 
      estimates of economic crude oil in undiscovered conventional oil fields, 
      and economic crude oil from continuous-type oil accumulations. Estimates 
      of economic oil assumed incremental costs of $30 per barrel for oil and 
      $3.34 per mcf for associated gas. Total crude oil represented is 68.7 
      billion barrels. BBO, billions of barrels of oil.
    Figure 6. Estimated shares, as 
      of January 1994, of total gas that could be available for production 
      during the next two decades through 2015. Sources consist of proved total 
      gas reserves, field growth through 2015 for fields discovered before 1992, 
      estimates of economic gas in undiscovered conventional oil and gas fields, 
      and economic gas in continuous-type oil and gas accumulations, including 
      economic coal-bed gas. Estimates of economic gas assumed incremental costs 
      of $3.34 per thousand cubic feet for gas and $30 per barrel for oil. Total 
      quantity of gas represented is 474 trillion cubic feet. TCF, trillion 
      cubic feet.


The estimates reported in the USGS 1995 national assessment are based on 
geologic data and probability analysis and are reported as ranges with different 
levels of confidence. The single numbers from the assessment shown in figure 
1 are the mean volumes expected to be found but should not be considered 
in absolute terms - the actual volumes ultimately discovered will vary from 
these numbers. The most significant results of the assessment are those that 
have to do with exploration and production trends and location of undiscovered 
resources, not absolute volumes. Similarly, economic models are best at 
suggesting the general direction and magnitude of trends rather than making 
precise predictions. Perhaps the most important conclusion of the economic 
analysis is the observation that -- even with the projected amounts from 
inferred reserves and real price increases to $30 per barrel (or $3.34 per mcf) 
-- to sustain production at 1994 levels will require significant improvements in 
exploration and production technology.

### A Comment on Economic Methodology

In contemplating the meaning of the economic analysis, or in using its 
results for further analytical or planning purposes, one must consider the time 
context of its methodology. The economic analysis is time independent. It 
predicts the price per barrel of oil or thousand feet of natural gas that it 
would currently take, with present technology, to convert undiscovered resources 
into proved reserves and to produce the reserves. Of course, it takes time to 
drill the wells necessary to prove the reserves, but during that time, both 
technology and scientific understanding will continue to evolve. Over the past 
two decades, for example, a number of geological and technological breakthroughs 
have been made that have led to significant efficiencies in exploration for, and 
development of, oil and gas resources. These include the following:

- Development and application of sequence stratigraphy to exploration 
  analysis, a concept that allows scientists to predict with significantly 
  greater accuracy the presence and location of source rocks, reservoir rocks, 
  and stratigraphic traps.
- Digital reprocessing of existing seismic profiles, making it easier to 
  identify geologic features.
- Three-dimensional seismic techniques that provide detailed images of the 
  subsurface and the precise location of potential oil and gas traps.
- Directional drilling, which enables a driller to aim at highly specific 
  underground targets as far as 5 miles from the drill site.

The North Slope of Alaska provides an excellent example of the effect that 
these advances have had on the relationship between oil price and volume of 
resource that is economically recoverable. During the 1970's and 80's, 
exploration effort focused on finding billion-barrel fields -- fields of less 
than several hundred million barrels were considered uneconomic at anything less 
than the inflated prices of the early 1980's. Only a few fields were discovered 
that fulfilled the apparent size requirements. However, today, accumulations as 
small as 50 million barrels are considered to be of economic interest. This 
change has created a dynamic revolution in North Slope oil exploration and 
production. This revolution is driven by economies stemming from the advances 
mentioned above and is bolstered by the existence of the transportation 
infrastructure associated with the Trans-Alaska Pipeline.

Similar advances in scientific understanding and technological expertise 
could take place during the time it would take to drill the wells necessary to 
turn present undiscovered resources into proved reserves. This possibility of 
advances suggests that estimates of undiscovered economic resources provided 
here are minimal. If significant scientific and (or) technological advances 
occur during the development of these resources, the volume of economically 
recoverable resources will increase under the same price assumptions. 
Alternatively, the estimated volumes might be produced at lower price points.

|References Cited
      Attanasi, E.D., 1998, Economics and the 1995 National Assessment of 
      United States Oil and Gas Resources: U.S. Geological Survey Circular 1145, 
      35 p.
      Gautier, D.L., Dolton, G.L., Takahashi, K.I., and Varnes, K.L., eds., 
      1996, 1995 
      National Assessment of United States Oil and Gas Resources -- Results, 
      methodology, and supporting data: U.S. Geological Survey Digital Data 
      Series DDS-30, release 2, one CD-ROM.
      U.S. Geological Survey, National Oil and Gas Resource Assessment Team, 
      1995, 1995 National Assessment of United States Oil and Gas Resources: 
      U.S. Geological Survey Circular 1118, 20 p.
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For more information, please contact:

Emil D. AttanasiU.S. Geological Survey956 National 
      CenterReston, VA 20192
    Telephone: (703) 648-6129E-mail: attanasi@usgs.gov


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U.S. Department of the 
      InteriorU.S. Geological Survey
    
    USGS Fact Sheet FS 
      024-98April 1998


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